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An apt statement I once heard from an attorney is, "If you don't have an estate plan, the IRS and the state have one for you, but you probably won't like it." This is because, in the absence of an estate plan, state law's intestacy statutes determine how your assets are distributed, and this may not align with your wishes.
So, what is estate planning? In simple terms, estate planning is the creation of a roadmap for distributing your assets after your death. However, it is much more than that. An effective estate plan also designates who will manage your finances and estate when you can no longer do it yourself. This is crucial considering the increasing prevalence of conditions like dementia and Alzheimer's. If you have a fully funded revocable living trust and such a condition arises, your successor trustee can step up to manage your estate.
In short, estate planning is necessary for three reasons: to protect yourself, to safeguard your family, and to secure your future.
In general, dying without proper estate planning documents usually results in the estate going through probate court. In Arizona, for instance, probate is necessary if the decedent's estate includes over $75,000 in personal property or $100,000 in real property.
The situation may be different in other states; for example, in California, probate comes into play for estates valued at roughly $184,500 or more. Without an estate plan, your assets could get tied up in the probate court, which can be a lengthy and costly process.
A will, also known as a "last will and testament," is often considered the foundation of an estate plan. Even if you have a living trust, you're still likely to have a will, often referred to as a "pour-over will." A will is a legal document that outlines how your estate should be managed, who inherits your property, and who oversees the distribution of your assets (a role known as the personal representative or executor). A will can also designate guardians for minor children, bequeath charitable gifts, and make provisions for tax planning.
Whether a will is sufficient on its own depends on the specifics of each case. Various strategies can be employed to avoid probate, but they all depend on the type of assets involved. For many people, their most significant assets are their home and retirement accounts. Both these assets can bypass probate with the right planning.
For a house, there are two main ways to avoid probate: a beneficiary deed, which is a deed filed with the county recorder that lists a beneficiary, and retitling the house in the name of a living trust. If a house is in your name and it's worth more than $100,000, it's subject to probate. But, if the house is titled in the name of a trust, the trust instructions direct what happens to the house upon your death. There's also a third option: if the deed is titled in joint tenancy with another person, the surviving person automatically assumes ownership of the entire property by operation of law.
As for retirement accounts, you can list beneficiaries, who can then inherit by following the necessary steps with the financial custodian, such as providing a certified copy of the death certificate.
So, is a will enough on its own? The answer hinges on your individual assets. Bear in mind that while these methods may avoid probate, they may not always be the best approach. For instance, if you list a minor as the beneficiary of a house, they may not be equipped to manage it, leading to potential foreclosure or unpaid property taxes. In such cases, placing the property in a trust might be a wiser choice. For more information on Need For Estate Planning In Arizona, an initial consultation is your next best step.